# A customer has sold short 100 shares of ABC stock in a margin account. ABC declares and pays a 10% stock dividend. How many shares must be purchased to close out the short position? A. 90 B. 100 C. 105 D. 110

Option D, 110, is the right answer.

Explanation:

Total number of shares that short = 100 share

The rate of dividend that ABC declares and pays = 10%

Now we have to find the number of shares that should be purchased in order to close out the short position.

Number of shares =  100 × 110%

Number of shares =  100  × (110 / 100)

Number of shares =  110

Thus, option D 110 is correct.

## Related Questions

On March 31, 2017, Alpha Corporation recorded the following factory overhead costs incurred: Factory Manager Salary \$7,000 Factory Utilities 2,000 Machinery Deprecation 11,000 Machinery Repairs 2,500 Factory Insurance (prepaid) 1,000 The overhead application rate is based on direct labor hours. The preset formula for overhead application estimated that \$21,000 would be incurred, and 10,000 direct labor hours would be worked. During March, 7,100 hours were actually worked on Job Order A-2 and 3,000 hours were actually worked on Job Order A-3. Use this information to prepare the March 31 General Journal entry to record the factory overhead costs. (round any final dollar answers to the nearest whole dollar):

Explanation:

check the file attached for full explanation

1.Calculate the present value (PV ) of a cash inflow of \$500 in one year, and a cash inflow of \$1,000 in 5 years, assuming a discount rate of 15%.

The present value of \$500 in one year is \$434.78 and the present value of \$1,000 in 5 years is \$497.18

Explanation:

Hi, we need to use the following formula

Present Value = Future Value/ (1+Discount Rate)^years

Therefore, in the case of \$500 in one year.

Present Value = \$500/(1+0.15)^1 = \$434.78

And for \$1,000 in 5 years

Present Value = \$1,000/(1+0.15)^5 = \$497.18

Notice that the discount rate (15%) has to be used in its decimal form, that is 0.15 (which you can get by dividing 15/100).

Best of luck.

Best of luck

A stock with a beta of 0.8 has an expected rate of return of 12%. If the market return this year turns out to be 5 percentage points below expectations, what is your best guess as to the rate of return on the stock?

The correct answer is:  The expected rate of return for the stock would be around 7%.

Explanation:

The Beta coefficient is a numeral measure that portraits the volatility of a stock compared to the overall market performance. If a stock's beta is closed to the numerical value one (1) it implies it is highly correlated to the price movement of the overall market.

In that case, if a stock's beta is 0.8 it implies it follows the market price movements. If the stock expected rate return is 12% but the market return turns out to be 5% points below expectations, it means the stock's return would end up being around 7%.

The rate of return on the stock would decrease proportionally to its beta value in response to the market return being lower than expected. Given the stock's beta of 0.8 and the market return falling 5 percentage points below expectations, the new estimated rate of return on the stock would be 8%.

### Explanation:

The rate of return on a stock can be affected by changes in market conditions. If the market return this year is lower than expected, this could affect the return on the particular stock in question, which has a beta of 0.8. The beta value of a stock measures its sensitivity to market movements, with a value less than 1 indicating that the stock is less volatile than the market. Given the expected return of 12%, a market return 5 percentage points below expectations implies that the new expected return on the stock would decrease proportionally to its beta. This can be calculated as 12% - (0.8 * 5%) = 12% - 4% = 8%. Therefore, if the market return is 5 percentage points below expectations, your best guess for the rate of return on the stock would be 8%.

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The bonds issued by Stainless Tubs bear a 6 percent coupon, payable semiannually. The bonds mature in 11 years and have a \$1,000 face value. Currently, the bonds sell for \$989. What is the yield to maturity

The annual YTM will be = 6.133735546% rounded off to 6.13%

Explanation:

The yield to maturity or YTM is the yield or return that an investor can earn on the bond if the bond is purchased today and is held till the bond matures. The formula to calculate the Yield to maturity of a bond is as follows,

YTM = [ ( C + (F - P / n))  /  (F + P / 2) ]

Where,

C is the coupon payment

F is the Face value of the bond

P is the current value of the bond

n is the number of years to maturity

Coupon payment = 1000 * 0.06 * 6/12 = 30

Number of periods remaining till maturity = 11 * 2 = 22

semi annual YTM = [ (30 + (1000 - 989 / 22))  /  (1000 + 989 / 2)

semi annual YTM = 0.03066867773 or 3.066867773% rounded off to 3.07%

The annual YTM will be = 3.066867773% * 2 = 6.133735546% rounded off to 6.13%

Your best friend wants to borrow \$2000 from you today for an emergency purchase they need to make that requires a cash payment. They promise to pay you back \$1000 in 1 year (i.e. 12 months) and then pay you \$1100 in two years (i.e. in 24 months). You would have to remove the money from your stock investment account which is earning on average a return of 5% (i.e. the effective yearly interest rate you are getting on your money is 0.05). Required:
a. Is this a fair deal for you? Justify your answer with an engineering economics analysis and discussion of the situation by calculating the Net Present Value (NPV) for the scenario.
b. Draw a Cash Flow Diagram for this situation.

a. It is not a fair deal for me.

The question is how much is \$1,000 today when received in 12 months' time from now.  The present value of \$1,000 at 5% effective interest rate is \$952 (\$1,000 * 0.952).  The other repayment of \$1,100 in 2 years' time from now is worth \$997.70 today at the 5% effective interest rate.  This implies that my friend is repaying me \$1,949.70 in present value terms.

For friendship sake, I may lend her the money, but in economic analysis terms, the NPV value will yield a negative value of \$50.30 (\$2,000 - \$1,949.70).  My friend is not actually paying me back the amount I would lend to her.  She is paying me less than I actually would lend to her.

b. Cash Flow Diagram:

Year 1             Year 2

F1                F2

\$1,000          \$1,100     (Inflows)

Fo⇵.................⇵.......................⇵...........................⇵n period

Year 0

\$2,000   (outflows)

Explanation:

The cash flow diagram for this loan is the graphical representation of the timing of the cash flows with a clear marking of the repayments made by my best friend in two instalments and the \$2,000 that I lent to her.  This cash flow diagram presents the flow of cash as arrows on a timeline scaled to the magnitude of the cash flow, where outflows are down arrows and inflows are up arrows.

The Net present value (NPV) of this loan shows the difference between the present value of repayments by my best friend and the present value of \$2,000 that I lent to her over a period of 2 years. To obtain this difference, the present values of cash inflows  of \$1,000 in a year's time and \$1,100 in two years' time are determined using the discount factor table based on the given interest rate of 5%.

Implications of game theory